Tesla shares sink on Wall Street (-9.6% in the pipeline), removing the first electric car manufacturer from the 900 billion dollar capitalization. Blame the new alerts on profitability that arrived from the quarterly presented on Wednesday after the bell and despite the progress on the side of earnings per share and turnover. It wasn’t enough for the market that second-quarter EPS was 91 cents, higher than the 81 cents per share estimated by analysts. Nor that the turnover has made a prodigious leap, +47% to 24.9 billion dollars, also in this case higher than expected (24.5 billion).
Gross margin at lowest since 2019
CEO Elon Musk, commenting on the accounts, said Tesla will have to continue cutting prices if interest rates continue to rise. Months of price cuts have pushed volumes brilliantly (466,000 deliveries between April and June, +83% on 2022) but have also depressed the gross margin, which has fallen to 18.1%, the lowest in the last four years. And that doesn’t please investors. However, the tycoon minimized: the declining profit margins would be temporary effects.
Assisted driving, Saas for other manufacturers
“Put margins at risk in favor of producing more vehicles makes sense,” Musk said, however, referring to his belief that Tesla will be able to offer a level of autonomous driving that will increase the value of even the cars already sold. Among other things, the CEO underlined the progress towards the possibility of making the although discussed driver assistance software (Full self driving, FSD) available to other manufacturers. Tesla is in preliminary discussions about licensing a major automaker, but no further details were provided. “If the company can successfully monetize its FSD assisted driving capabilities over the next five years, Tesla’s AI margins could be similar to those of a software-as-a-service company,” said Alec Lucas, Research Analyst at Global X. “Tesla’s margins contracted further this quarter,” Lucas added. But we think they’re at or near low now given the potential for increased operational efficiencies across the business. Tesla is now on track to reach $100 billion in revenue in 2023, growing nearly 50% year-over-year, something we believe few large-cap companies can match.
In addition to pricing, Tesla is investing money in new models, including the much-heralded Cybertruck, which has been unveiled but behind schedule: deliveries are expected to begin later this year. And then there’s Dojo, the supercomputer on which Musk plans to spend at least $1 billion by the end of next year.
Cybertruck aphids
According to Lucas, “the imminent launch of the Cybertruck, combined with product improvements and recent price cuts of the other models, should help Tesla remain competitive”.